Green Plains Inc. — Q1 2015 Form 10-Q
Business context and reporting period. Green Plains reported results for the three months ended March 31, 2015, compared with the same period in 2014. The company operates ethanol and corn-oil production, agribusiness, and marketing and distribution businesses. Financial amounts below are in millions of dollars unless stated otherwise.
Key financial results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $738.4 | $733.9 |
| Gross profit | $25.6 | $100.7 |
| Gross margin | 3.5% | 13.7% |
| Operating income | $4.1 | $78.3 |
| Operating margin | 0.6% | 10.7% |
| Net income (loss) | $(3.3) | $43.2 |
| Diluted EPS | $(0.09) | $1.04 |
| EBITDA, as defined by the company | $18.8 | $94.1 |
| Cash used by operating activities | $(45.8) | $(50.2) |
| Cash and cash equivalents, March 31 | $405.9 | — |
Revenue was nearly flat, but profitability fell sharply as ethanol-production and marketing margins weakened. Ethanol production operated at approximately 92.4% of daily average capacity, versus 95.6% for full-year 2014, as management reduced output in response to unfavorable margins. Ethanol and distillers-grains realized prices declined; lower corn costs partly offset the pressure.
Segments and material changes
- Ethanol production: Gross loss was $6.8 million, versus gross profit of $71.7 million a year earlier; operating loss was $13.1 million. Segment results deteriorated primarily because of lower realized ethanol and distillers-grains prices and weaker production margins. Ethanol sold was 232.5 million gallons, compared with 230.8 million.
- Marketing and distribution: Gross profit fell to $12.2 million from $40.7 million, mainly due to weaker ethanol activity margins. Ethanol sales volume rose to 275.9 million gallons from 259.1 million.
- Corn oil production: Gross profit increased to $10.4 million from $7.8 million; sales volume rose to 57.7 million pounds from 50.6 million, despite an approximately 10% lower average realized price.
- Agribusiness: Gross profit increased to $5.2 million from $3.0 million. Grain storage margins and the cattle-feeding operation acquired in 2014 contributed to the improvement. Grain and cattle revenue increased, while reported segment revenue was slightly lower overall.
- Consolidated revenue mix shifted: ethanol revenue declined to $444.3 million from $530.0 million and distillers-grains revenue to $109.4 million from $137.0 million; grain revenue rose to $99.1 million from $29.2 million and cattle revenue was $45.2 million, with no cattle revenue in the comparable quarter.
Liquidity, debt and cash flow
- At March 31, cash and cash equivalents were $405.9 million; restricted cash was $14.6 million. Current assets were $840.2 million and current liabilities $436.0 million.
- Total debt, including short-term borrowings, was approximately $700.2 million, versus $672.8 million at December 31, 2014. Long-term debt was $398.6 million; short-term notes and other borrowings were $239.4 million. The company reported $565.5 million of variable-rate debt.
- Management reported up to $154.2 million available under subsidiary revolving credit agreements, subject to borrowing-base limits and other conditions. Approximately $633.4 million of subsidiary net assets were restricted from transfer to the parent.
- Cash used in operating activities was $45.8 million, reflecting weaker operating profit and working-capital movements, including higher inventory and lower accrued liabilities. Investing activities used $14.7 million; financing activities provided $40.8 million.
- Management reported covenant compliance at quarter-end and expected to maintain compliance over the next 12 months, while cautioning that actual results could differ from forecasts. A $38.8 million Fairmont/Wood River term loan matures in November 2015 and management expected to refinance it at or before maturity.
- Quarterly dividend declared was $0.08 per share, compared with $0.04 in Q1 2014. Future dividends remain subject to board approval and business and market conditions.
Outlook, risks and unusual items
- No specific consolidated earnings or revenue guidance was provided. Management expected approximately $78.1 million of capital spending for the remainder of 2015, including ethanol-capacity and grain-storage projects; $12.9 million of capital expenditures was reported for Q1 in MD&A.
- The company intended to continue developing grain-storage capacity, targeting approximately 50 million bushels by year-end 2015. It also described possible plant expansions, terminal growth and acquisitions as strategic opportunities, not committed outcomes.
- Green Plains announced a proposed IPO of Green Plains Partners LP, with anticipated gross proceeds of approximately $200–$250 million. The registration statement had not been declared effective; timing, size and completion were uncertain and subject to market conditions.
- Commodity-price volatility is a central risk: corn, ethanol, distillers grains and natural-gas prices may move independently, compressing margins. Management also noted potential sudden liquidity needs from derivative margin calls, and risks from counterparties, regulation, weather, merchant trading and cattle operations.
- Debt fair value was estimated at $702.7 million versus book value of $700.2 million. Derivative balances and earnings effects are sensitive to commodity prices; the company expected unrealized cash-flow-hedge losses in accumulated other comprehensive income to be reclassified into operating income over the next 12 months as forecast transactions occur.
- Contractual commitments included $99.8 million of operating-lease payments and $282.8 million of contracted future commodity purchases. Ordinary-course litigation was disclosed; management did not expect pending matters to materially affect financial position, results or cash flows.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting. The filing also identifies proposed rail-safety restrictions announced April 17, 2015, after quarter-end, as an industry development.
Important facts for investors to verify
- Whether ethanol and marketing margins recover, and how production utilization and realized prices evolve.
- Liquidity and covenant headroom at subsidiaries, borrowing-base availability, potential margin calls, and refinancing of the $38.8 million loan due in November 2015.
- Whether the proposed Green Plains Partners IPO proceeds, its timing and terms, and the effect of any asset transfer on Green Plains.
- Execution and funding of the planned 2015 capital program, including the stated $78.1 million remaining-year estimate and grain-storage target.
- How derivative gains and losses, hedge reclassifications and commodity exposures affect reported results and cash requirements.